Saturday, September 20, 2008

Liberals and Wall Street

Let's be clear.  This financial crisis was created because the liberals (and Bush) liked the idea of the poor being able to buy houses, and Wall Street figured out a way to profit of the idiocity of the whole concept until the whole ponzi scheme went bust.

I think there will be an inevitable push against deregulation, but deregulation wasn't the problem.  The problem was the expectation that the government would be there to bailout the companies, since they were the ones pushing for an "ownership society" anyway.  Well it looks like they were right...

I blame HGTV and their endless run of "house flipping" shows.  In a few years we went from a country where the middle class was happy to have 3 bedrooms to a country where they were putting in granite counters in the ghettos.


mazenko said...

In all honesty, you're right in that it wasn't entirely about deregulation. However, the problem wasn't that these companies expected or even planned on a bailout either. It reminds me of the scene on "Cool Hand Luke" when the warden says, "Cutting the heads off of parking meters? Now, just where did you think that was going to get you?"

Luke responds, "I guess you could say I wasn't thinking, Boss."

That is precisely the point. Nothing but foolish risk fostered by unbridled greed. As I noted in my previous response:

We should probably acknowledge the links pointed out by Ed Gramlich, a Fed official, who was criticizing sub-prime lending and trying to get Greenspan to increase oversight by 2004. This, of course, he related to the repeal of Glass-Stagall, engineered by Phil Graham, passed by a Republican Congress, and signed by Bill Clinton. That deregulation of banking contributed to the problem far more than the existence of Fannie Mae.

Keep in mind that up to Gramlich's warnings in 2004, sub-prime was only 8.5 percent of mortgages in the US. However, by three years later, it surpassed twenty percent. At this time, Fannie/Freddie had nothing to do with the sub-prime, and were becoming insignificant in the mortgage game precisely because they can't do any subprime lending. They are restricted by law from sub-prime lending. Additionally, regulators by 2003 put new restrictions on them as a result of growing financial scandals.

Granted, their problems came not in lending but in not maintaining enough capital to back any downturn in the market. Thus, we have the issue of finance and regulation. NOW, I'm not arguing that deregulation is the sole culprit or that excessive regulation is the answer. But I certainly can't endorse oversimplying the issue into the standard "government is the problem" mantra. Government appears to be the only solution at this point - though I don't entirely agree with Bush/Paulson's actions.

Again, this implosion occurred during the past eight years when, in the words of Gramlich “the subprime market was the Wild West. Over half the mortgage loans were made by independent lenders without any federal supervision.” What he didn’t mention was that this was the way the laissez-faire ideologues ruling Washington -- a group that very much included Mr. Greenspan -- wanted it. They were and are men who believe that government is always the problem, never the solution, that regulation is always a bad thing."

Now, I'm no economist (though I did stay at a Holiday Inn Express last night - (sic)), but I think Gramlich has the credentials to know what he's talking about. And it's hard to see how a deregulator who claims to know little about the economy and who was advised by someone many blame for partially instigating this mess is going to know how to do the right things in terms of governing.

Parentalcation said...

"government is the problem"

I actually think that government can play a significant role in the world. My problem is that instead of encouraging the rabid profiteering and ponzi scheme of the last few years, if the government wanted to really encourage poor/minority homeownership, they would of been better off loaning the money out themselves.

There is no question that government intervention is necessary, but to avoid moral hazard it must include severe penalties. Making bailouts dependent on salary cuts of management and CEO's would punish those CEO's that acted the most irresponsibly and serve as a warning for future business actions.

Don't get me wrong... I am do not mind regulation, but only if its there to set the rules, not to control the game.